STEEL INDUSTRY Prices will go up for U.S. companies

Analysts are expecting more companies to turn profits in 2004.
PITTSBURGH (AP) -- U.S. steelmakers are seeing an improvement in pricing power despite the loss of tariffs on foreign steel, as a weak dollar has made their goods more competitive and demand remains strong in Asia, particularly China.
Some on Wall Street have actually raised their outlook for steelmakers, many of whom have announced price increases because of a tight supply market. In recent weeks, investors have embraced steel stocks, sending U.S. Steel Corp. to a three-year high and making International Steel Group's initial public offering of stock a success last week.
"We see the industry improving in line with the economy and that translates to increasing demand for steel," Daniel Roling, senior metals and mining analyst at Merrill Lynch said. "That should lead to improved prices for steel and a positive outlook for the steel industry over time."
Looking for profits
While many steel companies remain in bankruptcy and only a few like Steel Dynamics Inc. and Nucor Corp. reporting slight profits for the third quarter, analysts are looking for more to turn profits in 2004 as long as the economy continues to improve and if the dollar remains weak. The dollar has fallen 18 percent against the euro this month and is at multiyear lows against other major currencies, including the Japanese yen. A weak dollar makes imported steel more expensive and exported steel cheaper abroad.
Not all the industry's woes can be blamed on cheap imports.
Some analysts criticized U.S. steelmakers for blaming losses on foreign steel when the industry is still reorganizing itself in an effort to streamline operations. New contracts at consolidated mills call for fewer workers, revealing long-standing inefficiencies that are just now being corrected, said Charles Bradford of Bradford Research/Soleil Securities.
Still, investors are betting the industry will meet its restructuring goals.
Trading
U.S. Steel shares have been trading at about $32, up about $5 since the beginning of the month.
Shares of Cleveland-based ISG, formed from the remnants of bankrupt steelmakers like Pennsylvania-based Bethlehem Steel Corp. and Ohio's LTV Steel Co., has traded around $37 since its debut on the New York Stock Exchange last week, up from the $28 per share offer price.
"ISG's new labor contract eliminated a lot of general work rules," Bradford said. "It reduced the employee count at the mills. Bethlehem Steel plant is to have 30 percent less people. That tells you they had 30 percent too many people before."
Steel companies say they would have preferred President Bush keep the tariff in place. But Bush cut short the tariffs earlier this month after the 15-nation European Union threatened to retaliate with $2.2 billion in duties on U.S. products.
However, the combination of a weak dollar and a rebounding economy have meant relatively little, if any, impact on the industry.
U.S. Steel has announced to customers it will increase seamless standard pipe used for water and gas lines by $60 per ton and raise casing and tubing for the oil industry by $40 per ton.
"Our order books have been strong and such factors are being reflected in the stock market," Dixon said.
Demand for raw materials is also driving up prices, causing scrap-based steelmakers to pass on the higher costs to steel users. According to Purchasing Magazine, the average price of scrap hit a high of $192 per ton in December, compared to $129 in January.
Adding surcharge
Nucor, the nation's leading scrap-based steelmaker, announced Tuesday it will add a $20 per ton raw materials surcharge to its steel mill products starting next year due to a higher cost of scrap and other materials. The surcharge will be adjusted monthly.
Integrated companies like U.S. Steel that have their own iron and coke operations and use less scrap stand a better chance to see improvements on their bottom lines, Bradford said.
Adding to the tight supply of raw materials, U.S. Steel, the nation's largest coke producer, told customers it won't be able to meet supply contracts after a fire broke out at a West Virginia mine that supplies coal used to make coke at the company's Clairton, Pa., plant, the largest coke plant in North America.
Weirton Steel and WCI Steel of Warren were affected by the cutback, and WCI tacked on a $40-per-ton surcharge as a result.
Scott King, senior managing director at FTI Consulting in Cleveland, said the good news is that high raw material prices is affecting everyone around the globe, keeping domestic steelmakers on even footing with their overseas counterparts on that score. What's less uncertain is how long prices will continue to go up.
"The question is how long are they going to continue on the growth path that they are now," King said. "When that slows down, a lot of the old market dynamics will return."